For Gold Miners, the Worst Case Scenario

By Ben Levisohn

For a big gold mining company, it could get worse, but not much.

Shares of Compania de Minas Buenaventura (BVN) have plunged 7% today to $19.74 after the Peruvian gold miner not only missed its earnings forecast, but the company also said production had decreased, while costs hadn’t dropped nearly enough. Bloomberg has the details:

Net income plunged 51 percent to $102.7 million, or 40 cents a share, from $208.1 million, or 82 cents, a year earlier, Lima-based Buenaventura said today in an e-mailed statement. Analysts expected profit of 65 cents a share excluding one-time items, the average of five estimates compiled by Bloomberg…

JPMorgan’s John Bridges explains just how bad it was. In a report released last night, he writes:

The company reported lower attributable gold production of 244koz vs. JPMe of 252koz. Cash costs at $594/oz came in much higher than our expectation of $545/oz. The company also reported lower copper production vs. our estimates…leading to lower than expected revenues. Another driver of the miss was the lower contribution from affiliates Yanacocha and Cerro Verde mines at $84mn vs. our estimate of $108mn. DD&A was also higher at $39m vs. JPMe of $32m. BVN also realized gold, zinc and lead prices that were 2-3% lower compared to quarterly averages for the metals.

Credit Suisse’s Santiago Perez Teuffer, Ivano Westin and Marina Melemendjian cut the stock to Neutral from Outperform, and went as far to say that there are “no positives in sight.” In a report released today, they write:

BVN has not been able to control costs…The result: crushed margins—1Q13 saw a shocking 19p.p. y/y Ebitda mg contraction. Given its unclear resource potential, we expect the high exploration expenses to be a recurring factor in the picture: Additionally, cash costs in some of the most important direct operations have skyrocketed, even from a high base, and are now in the top range of its peers average.

In fact, they can’t identify a positive driver the company other than rising gold prices–and even that wouldn’t give the company as much of a boost as its peers.

Newmont Mining (NEM), which has partnered with Buenaventura, also missed forecasts yesterday afternoon on–you guessed it–higher costs, and that, along with the stagnant price of gold is helping bring down all gold miners today. The Market Vectors Gold Miners ETF (GDX) has dropped 2.7% to $29.11, while Newmont has fallen 7.5% to $31.44. South Africa’s Gold Fields (GFI) has dropped 2.7% to $7.12, and Barrick Gold (ABX) has fallen 1.5% to $18.97

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.